Mid-America Leading Economic Indicator Up Again; Points to Job Growth in Months Ahead

The March Business Conditions Index for the Mid-America region climbed for a fourth straight month, pointing to a growing economy in the months ahead, according to the March Business Conditions survey of supply managers and business leaders in the nine-state region.

The index advanced to 64.3, its highest level since May 2006, up from last month’s 61.0. An index of 50.0 is considered growth neutral for the leading economic indicator.

For a third straight month, the regional employment index rose above growth neutral. The March job reading bounced from February’s 56.1 to 57.9. For March, 28 percent of supply managers reported job gains for their firms, while only 12 percent indicated that their firms reduced employment.

“This is the first time that we have recorded three straight months of employment indices above growth neutral since July 2007. Despite this upturn, I expect unemployment rates for most states in the region to remain at elevated levels as firms remain overly cautious about hiring new workers,” said Goss, director of Creighton’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics.

Rebounding prices have accompanied the regional economic expansion. The prices-paid index, which tracks the cost of raw materials and supplies, moved above growth neutral for a 10th straight month to 80.5 from 78.3 in February. “The prices-paid index has more than doubled over the past year, signaling rising price pressures at the producer level. While we have yet to experience rising inflationary pressures at the consumer level, record-low interest rates from the Federal Reserve, combined with the stimulative federal government spending, are creating price bubbles in various commodities and will ultimately contribute to inflationary pressures at the consumer level – above the Fed’s goal of 1.75 percent to 2 percent. As a result, I expect the Fed to raise the federal funds rate by .25 percent before the end of the second quarter of this year,” said Goss.

Looking ahead six months, economic optimism, captured by the March confidence index, dipped slightly to a still strong 70.1 from February’s 73.0. “Record low interest rates, a stabilizing job market and recent declines in the nation’s unemployment rate buoyed the economic optimism of supply managers in the Mid-America region,” said Goss.

An improving global economy continues to push exports higher. New export orders advanced to 61.6, its highest level since the beginning of the recession in December 2007 and up significantly from February’s 55.4. The improving regional economy has also contributed to healthy imports with a March index of 57.0, down slightly from 58.8 in February. “Despite the recent appreciation in the value of the dollar, making U.S. goods less price competitive abroad, I expect exports to be an important ingredient of the regional economic recovery in the months ahead,” said Goss.

For a second consecutive month, supply managers in the nine-state region increased their inventory levels. The March inventory index inched upward to 57.5 from 57.4 in February. “Prior to February, we had recorded 16 straight months of inventory reductions for firms in the region. The current restocking will spillover into the rest of the economy in the coming months. This month, only 16 percent of supply managers reported that they would likely reduce inventory levels in the next 3 months. On the other hand, 22 percent expect to increase their inventory levels of raw materials and supplies for the next quarter,” said Goss.

Other components of the March Business Conditions Index were new orders at 72.1, up from February’s 66.1; production or sales at 72.2, up from 67.3; and delivery lead time at 61.8, up from February’s 58.4.

The Creighton Economic Forecasting Group has conducted the monthly survey of supply managers in nine states since 1994 to produce leading economic indicators of the Mid-America economy. States included in the survey are Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota.

The Creighton Economic Forecasting Group uses the same methodology as a national survey by the Institute for Supply Management, formerly the Purchasing Management Association, which has formally surveyed its membership since 1931 to gauge business conditions. The overall index, referred to as the Business Conditions Index, ranges between 0 and 100. An index greater than 50 indicates an expansionary economy over the course of the next three to six months.

Arkansas: The Arkansas Business Conditions Index for March climbed to 57.3 from February's 52.1. Components of the overall index for March were new orders at 46.8, production or sales at 68.4, delivery lead time at 61.9, inventories at 51.1, and employment at 58.5. “Based on our survey of supply managers in Arkansas over the past several months, I expect job gains for the second quarter of 2010. However, the increases will be very modest with unemployment rates remaining above 7 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

Iowa: For the sixth time in the past eight months, Iowa’s Business Conditions Index rose above growth neutral. The index, a leading economic indicator from a survey of supply managers, jumped to 63.5 from February’s 58.2 and January’s 52.1. Components of the overall index for March were new orders at 74.3, production or sales at 73.8, delivery lead time at 60.7, employment at 57.1, and inventories at 51.7. “Based on our survey of supply managers in Iowa over the past several months, I expect manufacturing and overall job gains for the first and second quarters of 2010. However, the increases will be very modest with unemployment rates remaining above 6 percent for the rest of 2010, as discouraged workers re-enter the work force,” said Goss.

Kansas: The leading economic indicator for Kansas from a survey of supply managers advanced for a fifth consecutive month. The March Business Conditions Index climbed to 54.1 from February’s 50.8. Components of the overall index for March were new orders at 58.4, production, or sales, at 51.9, delivery lead time at 65.1, employment at 42.4, and inventories at 53.3. “Based on our survey of supply managers in Kansas over the past several months, I expect job gains for the second quarter of 2010. However, the increases will be very modest with unemployment rates remaining above 6 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

Minnesota: Minnesota's leading economic indicator, based on a survey of supply managers, was higher for March. The Business Conditions Index climbed to 62.5 from a “revised” 62.3 for February and 51.4 for January. This was the eighth straight month that Minnesota's index has risen above growth neutral, pointing to expanding economic conditions for the first half of 2010. Components of the overall index for March were new orders at 75.5, production, or sales, at 73.8, delivery lead time at 63.4, inventories at 43.9, and employment at 55.8. “Based on our survey of supply managers in Minnesota over the past several months, I expect job gains for the first and second quarters of 2010. However, the increases will be somewhat modest with unemployment rates remaining above 7 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

Missouri: For a ninth consecutive month, Missouri’s Business Conditions Index was above growth neutral. The index from a survey of supply managers climbed to 58.8 from February’s 55.5. Components of the overall index from the March survey were new orders at 62.4, production, or sales, at 62.9, delivery lead time at 54.5, inventories at 58.9, and employment at 51.4. “Based on our survey of supply managers in Missouri over the past several months, I expect job gains for the first and second quarters of 2010. However, the increases will be modest with unemployment rates remaining above 8.5 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

Nebraska: For a seventh consecutive month Nebraska’s Business Conditions Index, a leading economic indicator, expanded above growth neutral. The March reading climbed to 63.3 from 58.8 in February and 54.2 in January. Components of the overall index for March were new orders at 68.4, production, or sales, at 67.5, delivery lead time at 61.7, inventories at 57.8, and employment at 61.1. “Based on our survey of supply managers in Nebraska over the past several months, I expect job gains for the second quarter of 2010. However, the increase will be very modest with unemployment rates remaining above 4.5 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

North Dakota: North Dakota's leading economic indicator remained below growth neutral 50.0 for March. The March reading advanced to 49.3 from 48.3 in February. Components of the overall index for March were new orders at 35.1, production, or sales, at 55.0, delivery lead time at 50.4, employment at 54.4, and inventories at 51.6. “Based on our survey of supply managers in North Dakota over the past several months, I expect job gains for the second quarter of 2010. However, the increase will be very modest with unemployment rates remaining above 4 percent for the rest of 2010,” said Goss.

Oklahoma: For a third straight month, Oklahoma’s leading economic indicator from a monthly survey of supply managers climbed above growth neutral. The Business Conditions Index soared to 66.5 from February’s tepid 52.3 and January’s 54.5. Components of March’s overall reading were new orders at 67.4, production, or sales, at 68.3, delivery lead time at 72.2, inventories at 58.4, and employment at 66.4. “Based on our survey of supply managers in Oklahoma over the past several months, I expect job gains for the second quarter of 2010. However, the increase will be modest with unemployment rates remaining above 6.5 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.

South Dakota: South Dakota's leading economic indicator climbed to a regional high of 70.7 from February’s 61.4 and January’s 54.4. Components of the overall index for March were new orders at 86.6, production, or sales, at 79.3, delivery lead time at 53.3, inventories at 69.1, and employment at 65.1. “Based on our survey of supply managers in South Dakota over the past several months, I expect job gains for the second quarter of 2010. However, the increase will be very modest with unemployment rates remaining above 4.5 percent for the rest of 2010 as discouraged workers re-enter the work force,” said Goss.